Formosa plant outage to boost chem prices in near-term - analyst

28 July 2010 09:41  [Source: ICIS news]

SINGAPORE (ICIS)--Petrochemical prices in Asia may get some short-term boost from the shutdown of Formosa's Mailiao refinery and cracker as some downstream units will be forced to go to the spot market to secure feedstocks, an analyst said on Wednesday.

"It's not too bad for the overall chemical market. You will see less supply coming from Formosa and [its] downstream companies will probably have to buy more products from the spot market," said John Chung, a Hong Kong-based analyst at brokerage house UBS Investment

Formosa Petrochemical intends to resume operations at two of its three crude units in Mailiao after a fire on Sunday forced the company to shut its 540,000 bbl/day refinery in Mailiao. An explosion occurred over the weekend at a 73,000 bbl/day desulphurising unit at the site.

Operations at selected downstream units were affected, including propylene and base oils. Formosa had said that it expects to incur an estimated loss of CNY500m from the 25 July fire.

Meanwhile, its 700,000 tonne/year naphtha cracker was expected stay off line for up to three months after it was shut in 7 July due to another fire incident.

"[These are] likely to support the chemical prices in the near term. But for the company [itself], we are expecting some earnings downside," said Chung.

"We are cautious on chemicals, we do expect prices to remain weak in near term. There may be some kind of bottoming toward the end of the year, but we are not expecting strong recovery in the next six months," he said.

Formosa Petrochemicals, which can produce up to 2.93m tonne/year of ethylene, is one of Asia's largest naphtha cracker operators.

UBS expects Formosa Petrochemicals' second-quarter earnings to slip 10-15% quarter on quarter due to weakness in the olefins market, he said. In the first quarter, the company recorded an operating profit of New Taiwan dollar (NT$) 11.9bn, 14% from the December quarter.

Chung said that UBS has a "neutral" stock rating for Formosa Petrochemical.

"Despite all the potential impact [from the Formosa fire and plant shutdowns), we think the stock is not really trading at very demanding valuation," he said, adding that he expects the Taiwanese petrochemical giant to "be back on track in the next two to three months".

"We’re not thinking about downgrading the stock. It (fire/accident) happens to a lot of ptetrochemical companies and this is just a one-time event," the UBS analyst added.

With additional reporting by Peh Soo Hwee

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By: Pearl Bantillo
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